Issue #31 - The best chequing account I've ever used, the volatility index spikes, and the importance of time and investing.

Read time: 3 minutes

Hola friends, this is the 31st weekly Journal I've written and my gudeness time flies when you're having fun. As always, glad to have everyone here. Your support is the fuel that keeps me going. If you are enjoying the weekly Journal, please forward this email to your friends to subscribe. 

1. Personal Finance

Wealth Simple has a great cash spending account that I've been using for the past few weeks.

No charge, easy to set up, and it pays 4% interest.

I definitely don't get this at Scotiabank, where l've been a customer for over 15 years. I get charged $18/mo just to have my money there.

Other benefits I can get with the new cash account:

• send and receive e-transfers, pay bills, etc.
• e-transfer daily limit is $5,000 whereas Scotia limits me to $3,000, which is kind of crazy.
• set up the "tap" feature on my iPhone just like my other bank cards.
• 1% cash back on spending.

So it works like a real high interest savings account only in a usable chequing format.

You can also use it like a visa for easy online purchases, only you don't use credit and over spend, since it's your dollars you are using.

The obvious drawback here is that you don't "build" credit, so take this into account before cancelling your typical Visa card.

So far I am very impressed by this account.

What do you think? Has anyone in my Canadian network used this app and specifically the cash spending account? Let me know!

Oh and before y'all go yelling "this too good to be true" - Wealth Simple is very much a regulated financial institution, is a member of the Canadian Investment Regulatory Organization and Customer accounts held there are protected by Canadian Investor Protection Fund.

2. Stock Markets

In case you missed it, a financial disaster just rocked world markets.

Mega recession fears and outright panic pummeled the stock markets.

The "VIX" or Volatility Index, shot up 100% in one day (see spike below). 

But time and time again, buy the rumor, sell the news. 

This was nothing but a bored market's excuse to get some action going and transfer money from weak to strong.  Novice traders got absolutely spanked trying to day trade this event, selling too late, and now they are out of the market wondering what the hell to do. 

But frequent readers of the Goodwill Investing Journal didn't wink an eye, for they understand weekly, even monthly or yearly gyrations in ANY market are irrelevant to a long term investing strategy.  

Stay the course.  

3. Real Estate

Question: is IRR or Equity Multiple more important when evaluating a real estate investment?

Answer: both are important!

Explanation:

Equity Multiple simply tells you how much money you make on the original investment.

Let's say you invest $100,000 in real estate, and you get back $200,000 when you sell it. Therefore, your 'multiple of equity' is 2x, because you doubled your investment. Pretty good!

But, since we are mortal humans and never know for sure when we'll meet our maker, time is critical. 

Internal Rate of Return (IRR) uses the investment and profit figures as well, but importantly factors the time it takes to earn that profit.

For example, if that 2x (100% gain) investment on your principal residence took 10 years from start to finish, your return (IRR) is 7%. Not as great as you thought.

Or, someone might brag and quote a 13% IRR - higher than the average S&P500 annualized return.

But then you ask them how long was the investment deployed? They respond, 2 years. 

Ok, fabulous work, but that means you only got a 1.27x Equity Multiple, or $27,000 on the $100,000.

Still great result, but the equity multiple isn't huge because that high % return only lasted 2 years. And good luck maintaining that 13% 5, 10, 15 years in a row. 

Remember, in finance, real estate, stocks, etc., nothing can truly be viewed in isolation. 

And while dollars are important, time reigns supreme. 

1 Quote

"Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma – which is living with the results of other people's thinking."

-Steve Jobs

A Question

I am thinking about interviewing people I look up to - successful investors, entrepreneurs, former bosses, etc. - about their approach to money, business, and life.

There are plenty of people I've met in my career that have offered me great perspective, and while many share similar values, no two success stories are the same.

And so I am curious, would any of you be interested in hearing a podcast series of interviews on this subject? Let me know!

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Thank you

Eddie Gudewill, CFA
 

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